Peso inches down vs dollar on US inflation data

The Ppeso inched lower against the dollar on Thursday following faster-than-expected US consumer inflation data that raised fears of a delay in the start of the US Federal Reserve’s planned policy easing.

The local unit closed at PHP 56.50 against the dollar on Thursday, weakening by less than a centavo from its PHP 56.491 finish on Monday, Bankers Association of the Philippines data showed.

The peso opened Thursday’s session weaker at PHP 56.53 versus the greenback. Its worst showing was at PHP 56.58, while its intraday best was at PHP 56.42 per dollar.

Dollars exchanged went up to USD 1.31 billion from USD 1.22 billion on Monday.

The peso weakened as faster-than-expected US inflation could push back the Fed’s rate cut cycle,  Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

US consumer prices increased more than expected in March as Americans continued to pay more for gasoline and rental housing, leading financial markets to anticipate that the Federal Reserve would delay cutting interest rates until September, Reuters reported.

The third straight month of strong consumer price readings reported by the Labor department on Wednesday also suggested that the pickup in inflation in January and February could not be solely attributed to businesses raising prices at the start of the year as economists had argued.

The consumer price index (CPI) rose 0.4% last month after advancing by the same margin in February, the Labor department’s Bureau of Labor Statistics said.

In the 12 months through March, the CPI increased 3.5%, the most since September. The CPI was also boosted by last year’s low reading dropping out of the calculation. It rose 3.2% in February. Economists polled by Reuters had forecast the CPI gaining 0.3% on the month and advancing 3.4% year on year.

Shortly after the data, financial markets pushed back their expectations for the first rate cut to September from June, according to CME’s FedWatch Tool. They now expect only two rate cuts instead of the three envisaged by Fed officials last month. A minority of economists see the window for rate cuts closing.

The central bank has kept its policy rate in the 5.25%-5.5% range since July. It has raised the benchmark overnight interest rate by 525 basis points since March 2022.

For Friday, the Mr. Ricafort said that he expects the peso to move from PHP 56.40 to PHP 56.60 versus the dollar. — L.M.J.C. Jocson with Reuters